5 ms·

Is this really an issue for low- to middle-income earners, or is that just a scare tactic?

WORMS_EAT_WORMS 5y ago
Most low to middle income earners struggle to hit their 5k or so maximum of a regular IRA versus operate a self-directed or have the additional funds to make it worth it.
- kube-system 5y ago
  Most low income Americans struggle to save any money for retirement at all.
- davio 5y ago
  I'd expect people who are actually doing this are rolling over large 401k balances to self directed IRAs rather than saving up a couple thousand a year. Entrepreneurs can put up to 58k a year into a Solo 401k
selykg 5y ago
This has no impact on the average person in the low to middle class income range. This is just a loophole allowing the rich to put a bunch of money into their IRAs and watch it grow in a tax advantaged way. The average person that's putting the max of $6k (or less) into their IRA is not impacted by this and it's business as usual for them. I believe this is in response to people like Peter Thiel https://www.propublica.org/article/lord-of-the-roths-how-tech-mogul-peter-thiel-turned-a-retirement-account-for-the-middle-class-into-a-5-billion-dollar-tax-free-piggy-bank https://www.propublica.org/article/lord-of-the-roths-how-tec...
- the_optimist 5y ago
  So your argument is: the law is restrictive enough that poor people are going to stay poor, thus you can safely ignore the consequences for them and create additional laws to restrict “rich” people. An extraordinary entitled and comfortable perspective shines through strongly here.
  - selykg 5y ago
    Actually, what I'd like to see are better opportunities for low and middle class people. I'm very clearly middle class, I likely make less than virtually every software developer reading this. I am lucky though in that I live in a low cost of living area, and managed to find a house that allows me to afford to put money into retirement accounts. I also got by reasonably well with college student loan debt. I'm relatively privileged in the above ways. If I wasn't quite so lucky and set up for success I'd struggle a lot to afford to put money into retirement accounts. I think the rich should pay their fair fucking share of taxes. It helps society. This loophole they're trying to get rid of actually means that those who are far better off than the rest of us, who are using these loopholes to avoid taxes will have to pay more taxes. Seems like a real win for the low and middle class people here.
    - the_optimist 5y ago
      This entirely fails to explain how 1) this a loophole 2) how this has disparate impact, and the sad punchline of your statement is “pay your fucking fair share” which you say to people who have saved and invested successfully, without regard to those who would hope to do so in the future. How exactly do you hope to create better opportunities for the low and middle income class? Here’s one idea: open up opportunities for them to invest in qualified accounts, like IRAs, silly.
      - selykg 5y ago
        I don't think you understand how this is being used as a tax loop hole. Please go read here: https://www.propublica.org/article/lord-of-the-roths-how-tech-mogul-peter-thiel-turned-a-retirement-account-for-the-middle-class-into-a-5-billion-dollar-tax-free-piggy-bank https://www.propublica.org/article/lord-of-the-roths-how-tec... This type of opportunity is NOT available for low to middle class families, never will be. It's simply being exploited by the rich. These families live paycheck to paycheck more often than not, they're not going to have the ability to invest shares of a company or real estate into their IRA. THey're more worried about paying their bills and the next paycheck. They don't have the extra income to make these kinds of investments. No, seriously, go read the fucking article and I think you'd understand instead of very clearly advocating for the rich like you are.
- czbond 5y ago
  Does the fact that more rich do it mean it's wrong? Or that low and middle income should use it as a model and the practice should be encouraged? I mean, if private citizens can build themselves up without being beholden to social security and Wall Street - why is this bad? What if - instead of the government keeping us to the lowest common denominator (social security) they encourage, educate, and allow everyone to be their highest common denominator?
  - xxpor 5y ago
    No one's saying you can't get rich. You have to pay taxes on the gains.
    - czbond 5y ago
      Agree - everyone should pay taxes. What I'm suggesting is leaving the "no taxation on this type of gain [IRA]" and promote it to the entire citizenry as a method of not requiring social security, or not needing to support as many people on social security. The governments job should be to support people being OFF SS based on their own supportive, good choices.... If more people were off SS, then the entire governments budget would go down - which requires less taxation. We've taken the opposite approach.. support consumerism and spending, thus the government taxation and expanding budgets grow higher as our population ages to support a wider group.
      - selykg 5y ago
        I'd be fine with this, but the problem is that the rich, who are utilizing these loopholes, are the same people not paying their employees a fair share so that they COULD support themselves and their future better. The wealth gap is freaking massive and growing. How are low and middle class people supposed to support themselves when they can't even get fair wages to support themselves and plan for retirement?
  - newhotelowner 5y ago
    > Or that low and middle income should use it as a model and the practice should be encouraged? Problem with the low/middle income is that where to begin? Rich people hire lawyers to do the work. Low/middle income like myself knows this is available but can't utilize it as we don't know where to start, how to do it, who to contact and can't afford to hire a lawyer.
- FooBarBizBazz 5y ago
  The $6k/yr limit on IRA contributions is a joke. Maybe most "low to middle class people" aren't contributing more than that, but, regardless, if that's all you're doing, you are completely fucked. The backdoor Roth part of this... basically anybody making even an entry level Tech salary should be doing it. That's not just for the Peter Thiels of the world. (By "should" I don't mean "I would prefer if policy were this"; I mean "this is what's smart to do right now, at an individual level, under current policy".)
  - ixacto 5y ago
    Using tax advantages to incentivize behavior is not the best way to run a government IMO. Just get rid of taxes for most low and middle income people like <300k/yr/family, this would make things much simpler and then there's no gigantic government bureaucracy administering it all. Also the government should file your own taxes, right now tutbotax & friends currently only exist due to government lobbying.
mistrial9 5y ago
high-appreciation residential real-estate of all kinds is attracting "investment" like flies on the beach; its not fake.. if a financial law intended to help low- to middle-income earners is being abused by a few with many multiples of common money amounts, why is that a "scare tactic" ?
sonotathrowaway 5y ago
It’s a scare tactic. These rules are really aimed at people Peter Thiel, in response to the pro public’s investigation - they don’t even hit other famous IRA (ab)users like Mitt Romney. But getting you angry enough to defend his wealth is much more difficult than obscuring the fact that you won’t be affected by them, so we instead get vague and scary warnings about the bill.
- mmd45 5y ago
  They can easily stop the next Pete Thiel by capping the appreciated IRA balance which they have in fact added a provision for. I don't comprehend the scare tactic of killing the self-directed IRA.
koboll 5y ago
It's an issue insofar as there are companies that have productized the ability to dodge some taxes and rules with a self-directed single-member LLC you invest in via your IRA. This would severely harm those companies, who presumably have low- and middle-income customers. One example: https://www.choiceapp.io/ https://www.choiceapp.io/
boogoob 5y ago
Given the relatively low cap on IRA contributions, it's not directly an issue of income, but rather your access to high-return investments like early-stage stock options. Of course, someone with lots of investments will have the luxury of just making the highest-payoff ones with their IRA funds. Independently, in the rest of the bill [1] there are lots of reasonable things like a $10 million IRA cutoff limit. 1) https://www.advantaira.com/wp-content/uploads/2021/09/WM-Tax-Title-Section-by-Section-Explanation-9.13.21-002.pdf https://www.advantaira.com/wp-content/uploads/2021/09/WM-Tax...
- TuringNYC 5y ago
  401ks can be rolled into IRAs, which people do to avoid poorly-chosen high-fee ETFs often found in 401k plans. For example, my employer's plan had 0.5% annual fee index funds when the same could be found for 0.05%. 401k limits are ~20k/yr -- about 10% of your pre-tax if you are maxing out on a 200k SWE TC (or much less given an employer match). Easily, your 401k (and rolled over IRA) can reach 200k (20k x 10) in a decade with no growth, and much more with growth. At that point, this bill is relevant -- do you really want all your holdings in public stock that gyrate wildly in value every 7yrs?
  - chrisjc 5y ago
    401k limits are about $58k per year... You can only personally contribute up to about $20k per year. There are ways to take advantage of the difference such as employer matching and after-tax traditional 401ks (and instantly convert to Roth money). This is also a way of contributing to a Roth (IRA?) if you don't qualify for a regular Roth IRA (make too much money) or want to contribute more than the $6k limit per year.

Most low to middle income earners struggle to hit their 5k or so maximum of a regular IRA versus operate a self-directed or have the additional funds to make it worth it.

kube-system 5y ago
Most low income Americans struggle to save any money for retirement at all.
davio 5y ago
I'd expect people who are actually doing this are rolling over large 401k balances to self directed IRAs rather than saving up a couple thousand a year. Entrepreneurs can put up to 58k a year into a Solo 401k

selykg 5y ago

This has no impact on the average person in the low to middle class income range. This is just a loophole allowing the rich to put a bunch of money into their IRAs and watch it grow in a tax advantaged way. The average person that's putting the max of $6k (or less) into their IRA is not impacted by this and it's business as usual for them. I believe this is in response to people like Peter Thiel https://www.propublica.org/article/lord-of-the-roths-how-tech-mogul-peter-thiel-turned-a-retirement-account-for-the-middle-class-into-a-5-billion-dollar-tax-free-piggy-bank https://www.propublica.org/article/lord-of-the-roths-how-tec...

the_optimist 5y ago
So your argument is: the law is restrictive enough that poor people are going to stay poor, thus you can safely ignore the consequences for them and create additional laws to restrict “rich” people. An extraordinary entitled and comfortable perspective shines through strongly here.
- selykg 5y ago
  Actually, what I'd like to see are better opportunities for low and middle class people. I'm very clearly middle class, I likely make less than virtually every software developer reading this. I am lucky though in that I live in a low cost of living area, and managed to find a house that allows me to afford to put money into retirement accounts. I also got by reasonably well with college student loan debt. I'm relatively privileged in the above ways. If I wasn't quite so lucky and set up for success I'd struggle a lot to afford to put money into retirement accounts. I think the rich should pay their fair fucking share of taxes. It helps society. This loophole they're trying to get rid of actually means that those who are far better off than the rest of us, who are using these loopholes to avoid taxes will have to pay more taxes. Seems like a real win for the low and middle class people here.
  - the_optimist 5y ago
    This entirely fails to explain how 1) this a loophole 2) how this has disparate impact, and the sad punchline of your statement is “pay your fucking fair share” which you say to people who have saved and invested successfully, without regard to those who would hope to do so in the future. How exactly do you hope to create better opportunities for the low and middle income class? Here’s one idea: open up opportunities for them to invest in qualified accounts, like IRAs, silly.
    - selykg 5y ago
      I don't think you understand how this is being used as a tax loop hole. Please go read here: https://www.propublica.org/article/lord-of-the-roths-how-tech-mogul-peter-thiel-turned-a-retirement-account-for-the-middle-class-into-a-5-billion-dollar-tax-free-piggy-bank https://www.propublica.org/article/lord-of-the-roths-how-tec... This type of opportunity is NOT available for low to middle class families, never will be. It's simply being exploited by the rich. These families live paycheck to paycheck more often than not, they're not going to have the ability to invest shares of a company or real estate into their IRA. THey're more worried about paying their bills and the next paycheck. They don't have the extra income to make these kinds of investments. No, seriously, go read the fucking article and I think you'd understand instead of very clearly advocating for the rich like you are.
czbond 5y ago
Does the fact that more rich do it mean it's wrong? Or that low and middle income should use it as a model and the practice should be encouraged? I mean, if private citizens can build themselves up without being beholden to social security and Wall Street - why is this bad? What if - instead of the government keeping us to the lowest common denominator (social security) they encourage, educate, and allow everyone to be their highest common denominator?
- xxpor 5y ago
  No one's saying you can't get rich. You have to pay taxes on the gains.
  - czbond 5y ago
    Agree - everyone should pay taxes. What I'm suggesting is leaving the "no taxation on this type of gain [IRA]" and promote it to the entire citizenry as a method of not requiring social security, or not needing to support as many people on social security. The governments job should be to support people being OFF SS based on their own supportive, good choices.... If more people were off SS, then the entire governments budget would go down - which requires less taxation. We've taken the opposite approach.. support consumerism and spending, thus the government taxation and expanding budgets grow higher as our population ages to support a wider group.
    - selykg 5y ago
      I'd be fine with this, but the problem is that the rich, who are utilizing these loopholes, are the same people not paying their employees a fair share so that they COULD support themselves and their future better. The wealth gap is freaking massive and growing. How are low and middle class people supposed to support themselves when they can't even get fair wages to support themselves and plan for retirement?
- newhotelowner 5y ago
  > Or that low and middle income should use it as a model and the practice should be encouraged? Problem with the low/middle income is that where to begin? Rich people hire lawyers to do the work. Low/middle income like myself knows this is available but can't utilize it as we don't know where to start, how to do it, who to contact and can't afford to hire a lawyer.
FooBarBizBazz 5y ago
The $6k/yr limit on IRA contributions is a joke. Maybe most "low to middle class people" aren't contributing more than that, but, regardless, if that's all you're doing, you are completely fucked. The backdoor Roth part of this... basically anybody making even an entry level Tech salary should be doing it. That's not just for the Peter Thiels of the world. (By "should" I don't mean "I would prefer if policy were this"; I mean "this is what's smart to do right now, at an individual level, under current policy".)
- ixacto 5y ago
  Using tax advantages to incentivize behavior is not the best way to run a government IMO. Just get rid of taxes for most low and middle income people like <300k/yr/family, this would make things much simpler and then there's no gigantic government bureaucracy administering it all. Also the government should file your own taxes, right now tutbotax & friends currently only exist due to government lobbying.

mistrial9 5y ago

high-appreciation residential real-estate of all kinds is attracting "investment" like flies on the beach; its not fake.. if a financial law intended to help low- to middle-income earners is being abused by a few with many multiples of common money amounts, why is that a "scare tactic" ?

sonotathrowaway 5y ago

It’s a scare tactic. These rules are really aimed at people Peter Thiel, in response to the pro public’s investigation - they don’t even hit other famous IRA (ab)users like Mitt Romney. But getting you angry enough to defend his wealth is much more difficult than obscuring the fact that you won’t be affected by them, so we instead get vague and scary warnings about the bill.

mmd45 5y ago
They can easily stop the next Pete Thiel by capping the appreciated IRA balance which they have in fact added a provision for. I don't comprehend the scare tactic of killing the self-directed IRA.

koboll 5y ago

It's an issue insofar as there are companies that have productized the ability to dodge some taxes and rules with a self-directed single-member LLC you invest in via your IRA. This would severely harm those companies, who presumably have low- and middle-income customers. One example: https://www.choiceapp.io/ https://www.choiceapp.io/

boogoob 5y ago

Given the relatively low cap on IRA contributions, it's not directly an issue of income, but rather your access to high-return investments like early-stage stock options. Of course, someone with lots of investments will have the luxury of just making the highest-payoff ones with their IRA funds. Independently, in the rest of the bill [1] there are lots of reasonable things like a $10 million IRA cutoff limit. 1) https://www.advantaira.com/wp-content/uploads/2021/09/WM-Tax-Title-Section-by-Section-Explanation-9.13.21-002.pdf https://www.advantaira.com/wp-content/uploads/2021/09/WM-Tax...

TuringNYC 5y ago
401ks can be rolled into IRAs, which people do to avoid poorly-chosen high-fee ETFs often found in 401k plans. For example, my employer's plan had 0.5% annual fee index funds when the same could be found for 0.05%. 401k limits are ~20k/yr -- about 10% of your pre-tax if you are maxing out on a 200k SWE TC (or much less given an employer match). Easily, your 401k (and rolled over IRA) can reach 200k (20k x 10) in a decade with no growth, and much more with growth. At that point, this bill is relevant -- do you really want all your holdings in public stock that gyrate wildly in value every 7yrs?
- chrisjc 5y ago
  401k limits are about $58k per year... You can only personally contribute up to about $20k per year. There are ways to take advantage of the difference such as employer matching and after-tax traditional 401ks (and instantly convert to Roth money). This is also a way of contributing to a Roth (IRA?) if you don't qualify for a regular Roth IRA (make too much money) or want to contribute more than the $6k limit per year.